PRODUCER SUITABILITY GUIDE

Transcription

1 PRODUCER SUITABILITY GUIDE Introduction Security Benefi t Life Insurance Company (SBL) is committed to providing consumers with insurance products that suit their fi nancial needs and objectives. In furtherance of this commitment, SBL has implemented suitability policies and procedures complying with the NAIC Suitability in Annuity Transactions Model Regulation as adopted by the NAIC in March 2010 (Suitability Model) and complying with state suitability requirements. As a result, SBL requires all producers to implement sales practices that ensure there are reasonable grounds for believing that each recommendation of an SBL annuity is suitable for the client. In addition, all producers must comply with the duties imposed in the Suitability Model as well as each respective state s suitability requirements. A copy of the Suitability Model and SBL s alerts on state suitability requirements are posted on our website. What is the Purpose of this Producer Suitability Guide? SBL developed this Producer Suitability Guide to inform you of your suitability responsibilities and our suitability responsibilities. In addition, this Producer Suitability Guide explains the steps you need to take in making your suitability determination and offers guidance on making an educated suitability determination. What are My Responsibilities? You are responsible for having reasonable grounds for believing that each recommendation you make of an SBL annuity is suitable for each client. To be able to do so, you must: Make reasonable efforts to obtain your client s suitability information; Have adequate knowledge of the SBL annuity or annuities that you are considering recommending to your client; Assess the various features of the SBL annuities of which you have knowledge against your client s suitability information and make a reasoned determination of which, if any, may be suitable for your client; Record your reason for recommending the SBL annuity to your client and maintain that record; Inform your client of the various features of the SBL annuity you are recommending; and Cooperate with our efforts to supervise the suitability of your recommendations, including providing follow-up information as we may require in any review of your transactions. What are SBL s Responsibilities? We are responsible for your transactions and for supervising your compliance with state insurance suitability requirements. This means we shall not issue an SBL annuity you recommend unless there is a reasonable basis to believe the annuity is suitable based on your client s circumstances. In addition, we must: Inform you of your suitability requirements, which is the purpose of this Producer Suitability Guide; Provide product-specifi c training and training materials which explain all material features of the SBL annuities; Maintain a procedure for reviewing each of your recommended SBL annuity transactions; and Maintain reasonable procedures to detect recommendations that are not suitable. What is Suitability? Suitability means that your client buys an annuity for the right reasons, with full understanding of the features of the annuity, which includes the annuity benefi ts, as well as the conditions, limitations, and restrictions on the annuity benefi ts. Suitability requires your professional analysis and judgment, based on your client s circumstances. It also requires you to inform your client about the features of the annuity so your client can make an informed decision. Each client has unique circumstances, and suitability entails assessing your client s unique circumstances to determine which, if any, annuity meets your client s needs and fi nancial objectives. Thus, because each of your clients needs and fi nancial objectives differ, no single annuity is right for all your clients. Page 1 of 24 IM /02/10

2 What Client Information Must I Obtain? Before you can make a recommendation to a client, you must understand your client s circumstances. This means that you must obtain information from your client that will help you assess your client s needs, fi nancial information and objectives, and reasons for purchasing an annuity. You should also discuss with each client anticipated upcoming life events (such as change in job status, need to care for others, and health status). At a minimum, you must obtain information on your client s suitability information, which includes: Age; Annual income; Financial situation and needs, including the fi nancial resources used for the funding of the annuity; Financial experience; Financial objectives; Intended use of the annuity; Financial time horizon; Existing assets, including investment and life insurance holdings; Liquidity needs; Liquid net worth; Risk tolerance; and Tax status. Please review the information on our website to determine if any state requires additional information to be collected from your clients. SBL has created three forms, available on our website, for your use in collecting your client s suitability information: Annuity Suitability Form ( Suitability Form ); Financial Inventory Form; and Replacement Comparison Form. Any additional forms required by the state where the annuity is to be issued can also be found on our website. Do I Have to Use SBL s Suitability, Financial Inventory, and Replacement Comparison Forms? We require the use of our Suitability Form and Replacement Comparison Form for all applications written for SBL annuities. This will ensure we are provided with the information we need to review your recommendation of the SBL annuity in the least amount of time. You may use our Financial Inventory Form or that of another carrier. However, our form is designed to obtain the information we will most likely need if we require additional information from you. Thus, if you choose to use another carrier s Financial Inventory form, it may result in delays as you collect the additional information we need. How Do I Complete SBL s Suitability, Financial Inventory, and Replacement Comparison Forms? Instructions on how to complete SBL s Suitability, Financial Inventory, and Replacement Comparison Forms are set forth in Appendix A. Who Should Complete SBL s Suitability, Financial Inventory, and Replacement Comparison Forms? Your client must provide the information to complete SBL s Suitability Form and Financial Inventory Form. If your recommendation involves an exchange or replacement, your client must also provide the information to complete SBL s Replacement Comparison Form. It does not matter who actually completes the forms. However, your client must have an opportunity to review and sign the completed forms. The client should not sign blank forms. What if My Client Refuses to Give Me His or Her Information? At SBL, we take our commitment to providing consumers with insurance products that suit their fi nancial needs and objectives very seriously. Thus, we do not allow any application to be processed or annuity to be issued if the appropriate suitability information has not been provided. Page 2 of 24 IM /02/10

3 How Do I Determine if an Annuity is Suitable? In addition to obtaining and understanding your client s suitability information, to make a suitability determination you must know about annuities generally and have an adequate knowledge of the annuity you are considering for your client. An understanding is necessary for you to assess the features of the annuity, which include the conditions, limitations, and restrictions on the annuity benefi ts, in order for you to make an educated recommendation to your client. 1 You should then make your suitability determination, using your professional analysis and judgment, based on your understanding of your client s suitability information and the annuities you are considering. You should use that understanding to assess whether: The annuity meets your client s insurance needs and fi nancial needs and objectives at the time of sale; The annuity offers substantial benefi ts over the life of the annuity; and Your client will be able to satisfy the conditions, limitations, or restrictions required to receive the benefi ts of the annuity. Your determination should focus on your client s needs and objectives for both the present and the future. If you determine that an annuity would not help your client meet their needs and objectives, the annuity should not be recommended. When Might an Annuity Be Suitable? Generally, an annuity is suitable for clients who: Have no immediate need for liquidity from the annuity and expect to hold the annuity for at least the length of the surrender charge period; and Have suffi cient funds and assets available to cover living expenses and in case of emergency, taking into account any reasonably anticipated future changes in income, living expenses, liquid assets, and health care needs. When Might an Annuity be Unsuitable? Examples of unsuitable sales include: A surrender charge schedule that exceeds a client s life expectancy; A client purchasing an annuity that ties up too much liquid assets; A client purchasing an annuity with proceeds of a loan or reverse mortgage; Where the premium is gifted money, i.e., a personal check written by someone other than the applicant. A client failing to understand the benefi ts, features, and limitations of the annuity; Replacing an annuity where both the new and old annuities have the same features and benefi ts; and Replacing an annuity where the surrender charges and other fees or market value adjustments of the old annuity outweigh the benefi ts of the new annuity. What are the Special Considerations for Exchanges or Replacements? In considering whether an annuity exchange or replacement may be suitable, you must consider whether and how your client will benefi t from the exchange or replacement. This includes considering whether your client: Will incur a surrender charge; Will be subject to the commencement of a new surrender charge period; Will lose existing guaranteed benefi ts (such as death, living, or other contractual benefi ts); Will be subject to increased fees or charges for riders and similar product enhancements; Will benefi t from product enhancements and improvements; and Has had another annuity exchange or replacement within the preceding 36 months. We have created the Replacement Comparison Form to help you assess the suitability of the exchange or replacement. In addition, if your recommendation involves an exchange or replacement, you must comply with SBL s Replacement Policy which is available on our website. 1 To facilitate your understanding of the annuity you are considering, SBL requires that you complete certain training. Your training requirements are described below. Page 3 of 24 IM /02/10

4 What Kind of Record of My Recommendation Do I Need? Written records of the discussions held with your client need to be maintained for possible future reference. Most suitability issues arise when your client or their benefi ciary wants access to the annuity funds. These records may be called upon to support your recommendation should an issue arise as to why the annuity was recommended. Your records should include information on your client s circumstances and completed copies of SBL s Suitability, Financial Inventory, and Replacement Comparison Forms. Your records should also detail how the annuity you recommend meets your client s needs and objectives based on your client s circumstances as collected on SBL s Suitability, Financial Inventory, and Replacement Comparison Forms. Your discussions with your client as to his or her understanding of the features of the annuity, and distribution features in particular, should also be refl ected in your records. This includes your client s understanding of any conditions, limitations, or restrictions on receiving funds from the annuity. This will help you ensure that their needs and expectations can be met with the annuity you recommend. For this reason, you should document each conversation and the information discussed and presented. These records should be maintained for at least the term of the contract plus seven years (or longer if required by law). What Information Do I Need to Give My Client? In order for your client to make an informed decision about his or her annuity purchase, your client must be reasonably informed of the various features of the annuity. This means that it is not suffi cient for your client to be informed only of the benefi ts. Rather, your client must also be informed of the conditions, limitations, or restrictions on the benefi ts of the annuity you are recommending. This includes being informed about: Other fees and charges or features that may reduce the funds received under the annuity; The surrender charge period and surrender charges; The potential tax penalty if your client sells, exchanges, surrenders, or annuitizes the annuity; Charges for and features of riders; Limitations on interest returns; Insurance components; and Investment components, including the extent to which market risk may impact the value of their benefi ts. Comparison of riders between the contracts. We have developed a Statement of Understanding for each SBL annuity that describes the features of the SBL annuity. We require that you review with your client the Statement of Understanding for each SBL annuity you recommend. In addition, we require that you obtain your client s signature that he or she has reviewed the Statement of Understanding. We require that you submit the signed Statement of Understanding with the application for the SBL annuity. If it is not received, or if it is not signed, we will return the application and other materials to you as an application Not In Good Order. Your client may also need assistance in making the decision to purchase an annuity. You should remind them to discuss any annuity purchases with their tax advisor or legal professional. For certain older clients, you may want to consider involving a client s family member in the decision to purchase an annuity to ensure that the purchase fi ts your client s insurance needs and fi nancial needs and objectives. What Training is Required? As part of the suitability requirements, you must complete your state s required one-time 4-hour general course on annuities or other required training adopted by your state. This required general training course may be completed through any carrier. However, if this training is not completed through SBL s selected training partner, we require documentation of successful completion of the course. In addition, you are required to complete SBL s product-specifi c training. All product-specifi c training must be completed through SBL s selected training partner for SBL products. Upon appointment with SBL, you will receive information regarding your access to this training. Training is required so that you understand the SBL annuities you are considering for your client and you can inform your client of the various features of the annuity you recommend. Page 4 of 24 IM /02/10

5 How will SBL Supervise My Suitability Recommendation? We have implemented policies and procedures to supervise your suitability recommendations. This means that SBL will: Upon receipt of an application, review the SBL Suitability Form to see if it is complete and contains all the information we require. If any required information is missing, then we will return the application and other materials to you as an application Not In Good Order; Apply a screening system to all annuity transactions for the purpose of identifying selected transactions for additional review; Apply certain procedures for the purpose of detecting recommendations that are not suitable; Monitor your sales activity with respect to replacements and suitability for any trends; and Audit a random selection of transactions. If SBL determines that an annuity transaction must be subject to further suitability review, additional information may need to be gathered from you. During this review, SBL expects that you will be able to provide the information gathered from the Suitability Form and Financial Inventory Form. SBL also reserves the right to contact your client directly. What if I Have Questions? SBL s Suitability Team is available to discuss a suitability determination you are making. While the Team cannot assist you in making the fi nal suitability determination without having received your client s application and other required forms, they can discuss the important information and let you know if they have any concerns. You can reach the Suitability Team at or suitabilityreview@securitybenefi t.com. Page 5 of 24 IM /02/10

6 APPENDIX A COMPLETING SBL S FORMS This Appendix will assist you in completing the forms required to determine whether a recommended annuity is suitable for your client. Set forth below are step by step instructions on how to complete the Annuity Suitability, Financial Inventory, and Replacement Comparison Forms. The instructions also provide examples of the types of information being requested and descriptions of how the information is relevant to your suitability analysis. ANNUITY SUITABILITY FORM The Annuity Suitability Form ( Suitability Form ) provides an organized way for you and your client to collect and discuss the information needed to determine whether a recommended annuity meets your client s needs and fi nancial objectives. All information requested in the Suitability Form must be completed, including the client s and your signature. If any change is made, your client must sign and date the change before it is submitted. Missing information may delay our processing of the application and issuance of the annuity. We reserve the right to contact you or your client to clarify the information contained in the Suitability Form or to collect additional information we determine is relevant to the suitability analysis. In Florida, you will use the Florida Suitability Questionnaire ( ). If the sale involves a replacement, you will also use the Florida Disclosure and Comparison of Annuity Contracts ( ). Note: the form sections depicted below will be different on the Florida forms. Except where stated below, if the owner of the annuity is an entity, you should fill in the Suitability Form based on the annuitant s information. Applicant Information 1. Provide Applicant Information Applicant Name Age First MI Last State Signed at SSN/Tax ID # *Non-resident form is required if different than resident state. Employment Status Employed Unemployed Retired Joint Applicant Name Age First MI Last Employment Status Employed Unemployed Retired Applicant and Joint Applicant Names Fill in the name of the proposed owner and any proposed joint owner, regardless of whether the owner or joint owner is a natural person or an entity. State where the Application was signed Fill in the state where your client signed the application for the annuity. This will be annuity s issue state. The laws of the issue state will apply to the annuity. Applicant and Joint Applicant Ages Fill in: If the proposed owner or joint owner is a natural person, fi ll in the age of the owner or joint owner. If the proposed owner is an entity, fi ll in the age of the annuitant. If the joint owner is an entity, fi ll in N/A. SSN/Tax ID # Fill in: If the proposed owner or joint owner is a natural person, the social security number. If the proposed owner is an entity, fi ll in the federal tax identifi cation number. Applicant and Joint Applicant Employment Status Fill in the employment status of the owner or joint owner. If the owner is an entity, fi ll in the employment status of the annuitant. If the joint owner is an entity, fi ll in N/A. Page 6 of 24 IM /02/10

7 Annuity Information 2. Provide Annuity Information Annuity Product Name Anticipated Amount Annuity Type Qualified Non-Qualified Annuity Product Name Fill in the marketing name of the annuity you are recommending to your client. Anticipated Premium Amount Fill in the amount of the proposed premium. Be sure that the anticipated premium amount is above the annuity s minimum premium amount and below the maximum premium amount. Consider whether your client will have other means to pay living expenses and emergency expenses after the purchase of the annuity. Annuity Type Select the tax status of the annuity. Remember, qualifi ed annuities do not provide additional tax benefi ts to the owner. Financial Information 3. Provide Financial Information (See page 4 for helpful definitions.) Include financial information of the Applicant, and if a member of the same household, the Applicant s spouse/partner. 1. Approximate annual income $ Source of Income 2. Approximate annual living expenses $ 3. Disposable income (question 1 minus question 2) $ 4. Do you anticipate a significant increase in living expenses or decrease in annual income or liquid assets during the surrender charge period of the annuity? Yes No If yes, please explain 5. Where do you currently reside? Personal residence With family members Nursing home Assisted living facility 6. Do you have sufficient funds or other assets available, without penalty, for living expenses and in case of emergencies? Yes No If no, please explain 7. Federal income tax bracket 0% 10% 15% 25% 28% 33% 39.6% Other 8. Approximate net worth (excluding primary residence and personal property) $ 9. Approximate liquid assets after annuity purchase $ Remember: If the owner of the annuity is a trust, the remainder of the Suitability Form should be based on the grantor of the trust, in the case of a revocable trust and on the trust in the case of an irrevocable trust. For the financial information requested, include the owner or annuitant s information as well as spouse or partner, if a member of the same household. 1. Approximate annual income Fill in the approximate dollar amount of annual income. Use the Annual Income section of the Financial Inventory Form to help your client determine his or her income. It may be helpful for your client to refer to his or her tax return. Your client must have suffi cient income to meet their annual living expenses and unexpected expenses, such as healthcare or other emergencies. If your client s income is not suffi cient, they may need to access the amount held in the annuity prior to the end of the surrender charge period. Please include the source of income. Page 7 of 24 IM /02/10

8 2. Approximate annual living expenses Fill in the approximate dollar amount of annual living expenses. These amounts are approximate and do not have to be exact. Your client may provide educated estimates of these expenses. Use the Annual Living Expenses section of the Financial Inventory Form to help your client determine his or her expenses. Living expenses are the costs that your client must be able to pay. If your client s income is not suffi cient to meet their living expenses, along with certain unexpected expenses, they may need to access the amount held in the annuity prior to the end of the surrender charge period. 3. Disposable income Fill in the dollar amount of the difference in the approximate annual income and the approximate annual living expenses. 4. Anticipated increase in living expenses or decrease in annual income or liquid assets Ask your client whether a signifi cant increase in living expenses or decrease in annual income or liquid assets is anticipated. If the answer is yes, the reason for and amount of the increase or decrease must be explained. An increase in living expenses may include increased medical expenses, moving to an assisted living or nursing home facility, or costs associated with dependent care. A decrease in annual income may include loss of income due to retirement and lower pension payments. If the answer to this question is yes, it may indicate that your client s fi nancial status may be changing and further analysis is needed to determine if your client would have suffi cient income and assets to meet the changing needs without accessing the amount held in the annuity prior to the end of the surrender charge period. If the answer to this question is yes, you should document how you assessed your client s changing situation and whether the change may affect your client s need to access the amount held in the annuity prior to the end of the surrender charge period. Your discussion with your client about your assessment should also be documented. 5. Where does the Applicant currently reside? Fill in the owner/annuitant s current living situation. Nursing home is a facility licensed by the state to provide, on a daily basis, convalescent or chronic care for in patients who, by reason of illness or infi rmity, are not able to care for themselves. Assisted Living Facility is a residential setting that provides either routine general protective oversight or assistance with activities necessary for independent living to mentally or physically limited persons. An annuity may not be suitable for a client that resides in a nursing home or assisted living facility because the client may need to access the amount held in the annuity prior to the end of the surrender charge period. Additionally, clients that live in a nursing home or assisted living facility may have diminished capacity and not understand the features of the annuity. 6. Does the Applicant have sufficient funds or assets, without penalty, for living expenses and emergencies? Consider your client s disposable income and liquid net worth to assess whether your client has suffi cient income or assets available, without penalty, so that the chance that your client must access funds, other than the free withdrawal amount, prior to the end of the surrender charge period is remote. This analysis should consider any reasonably anticipated future changes in income, living expenses, liquid assets, and health care needs. 7. Federal income tax bracket Select the relevant tax bracket. To determine the relevant tax bracket, review the previous year s tax return to determine the taxable income and compare that amount to the current IRS tax bracket table (available at If your client is in the lower tax brackets, it may suggest that your client may not have suffi cient income to meet their annual living expenses and unexpected expenses, such as healthcare or other emergencies. Additionally, the tax benefi ts of a deferred annuity will be of limited benefi t to clients in the lower tax brackets. 8. Approximate net worth Fill in the dollar amount of net worth. Use the Net Worth section of the Financial Inventory Form to help your client determine his or her net worth. Low net worth may indicate that your client does not have enough assets that are easily liquidated to meet their living expenses or unexpected expenses, if necessary, which means there is a greater potential that your client would need to access the amount held in the annuity prior to the end of the surrender charge period. Page 8 of 24 IM /02/10

9 9. Approximate liquid assets after annuity purchase Fill in the amount of liquid assets available after the annuity purchase. Use the Liquid Assets section of the Financial Inventory Form to help your client determine his or her liquid assets. It is important that your client have liquid assets after the purchase of the annuity to meet annual living expenses and unexpected expenses, such as healthcare or other emergencies and not have to access the amount held in the annuity prior to the end of the surrender charge period. Financial Experience 4. Provide Financial Experience Include financial information of the Applicant, and if a member of the same household, the Applicant s spouse/partner. 10. What other financial products do you own or have you previously owned? If currently owned please include value of accounts. (Check all that apply.) If not currently owned, please put $0. None Certificates of deposit $ Variable annuities $ Stocks/bonds/mutual funds $ Money Market Account $ Fixed and fixed index annuities $ Variable life insurance $ Reverse Mortgage $ 11. What is your current risk tolerance? Conservative Moderately conservative Moderate Moderately aggressive Aggressive 12. Does the annuity you are applying for fit your risk tolerance? Yes No 13. Total value of all annuities you own (including this annuity) $ 10. What other financial products does the Applicant own or has owned? Select all of the products with which your client has experience. The extent of your client s experience with fi nancial products may be an indication of their ability to understand the features and limitations of the annuity that you are recommending. Please include the current value of all such accounts. If the client does not currently own a particular fi nancial product but did in the past, please list the $ What is the Applicant s current risk tolerance? Select the applicable level. Risk tolerance is the amount of uncertainty your client is willing to accept with regard to the change in value of their investment. The more willing a client is to accept the possibility that the value of their investment will fl uctuate and potentially decline, the more aggressive their risk tolerance. A client with a more conservative risk tolerance will be less likely to be willing to take the chance that their investment will lose value. Your client s risk tolerance is useful in assessing whether the annuity meets their fi nancial objectives. 12. Does the recommended annuity fit the Applicant s risk tolerance? Select yes or no. The purchase of an annuity that does not fi t your client s risk tolerance is unsuitable because it suggests that the annuity would not fi t your client s fi nancial objectives. 13. What is the total value of all the annuities the Applicant owns? Fill in the total dollar amount of all of the annuities your client owns, including the dollar amount of anticipated premium indicated in Annuity Information. If a client has too large a percentage of their assets in annuities, it may indicate that your client s assets are not easily liquidated and your client may not be able to meet their annual living expenses and unexpected expenses, such as healthcare or other emergencies, without accessing the amount held in the annuity prior to the end of the surrender charge period. Page 9 of 24 IM /02/10

10 Financial Objectives 5. Provide Financial Objectives 14. What are your financial objectives in purchasing this annuity? (Check all that apply) Income now Future income Lifetime Income Pass to beneficiaries Guarantee of premium Guaranteed interest rate Potential interest based on the market Tax-deferral Probate avoidance Other 15. What is the source of this annuity s premium? (Check all that apply) Savings/checking/money market Certificates of deposit Current income Annuity Life insurance Inheritance Stock/bonds/mutual funds Reverse mortgage Home equity loan Other 16. Do you believe that this annuity will meet your financial needs? Yes No 17. Is this a replacement of an annuity or life insurance contract? Yes No If yes, please complete Annuity Comparison Form. 18. If yes, what type of contract is being replaced? Fixed Annuity Index annuity Variable annuity Life 14. What are the Applicant s financial objectives in purchasing the annuity? Select all of the reasons why your client wants to purchase this annuity. Your client s fi nancial objectives should match the features of the annuity for which they are applying. 15. What is the source of the premiums for the annuity? Select each of the sources with which your client is going to pay the annuity s premium. Certain sources of premium may make the recommended annuity unsuitable for your client. For example, premiums from a reverse mortgage or home equity loan are not suitable. This is because your client may not be able to meet their annual living expenses and unexpected expenses, such as healthcare or other emergencies, without accessing the amount held in the annuity prior to the end of the surrender charge period. If the source is not listed, select Other and describe the source. 16. Does this annuity meet the client s needs? Select yes or no. 17. Is this a replacement of another annuity or life insurance? Select whether another annuity or life insurance contract is being replaced by the purchase of this annuity. Replacement occurs when, in connection with the purchase of the annuity, an existing annuity or life insurance contract is: a. Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated; b. Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefi ts or other policy values; c. Amended so as to effect either a reduction in benefi ts or in the term for which coverage would otherwise remain in force or for which benefi ts would be paid; d. Reissued with any reduction in cash value; or e. Used in a fi nanced purchase. A fi nanced purchase is the purchase of a new policy or contract involving the actual or intended use of funds obtained by the withdrawal or surrender of, or by borrowing from values of, an existing policy or contract to pay all or part of any premium due on the new policy or contract. If the purchase of the annuity is a replacement, you should review our Replacement Policy which provides our position on the acceptability of replacement transactions. Additionally, if the purchase of this annuity is a replacement of an existing annuity, the Replacement Comparison Form, described below, will also need to be completed. There may be additional forms required by your state. 18. If this is a replacement, what type of product is being replaced? Select the correct answer. Page 10 of 24 IM /02/10

11 Accessing Your Money 6. Accessing Your Money 19. Did your Agent discuss the ways to access your money in the annuity? Yes No 20. How do you anticipate taking distributions from this annuity? (Check all that apply) Immediate income Annuitize Lump sum Free withdrawals Withdrawals more than free withdrawals Required minimum distribution Guaranteed lifetime withdrawal benefit Leave to beneficiary No plans to access 21. When do you anticipate taking your first distribution from this annuity? (Choose one) Less than one year One to five years Six to nine years 10 or more years None anticipated 22. Do you understand that withdrawals taken in excess of the free withdrawal amount during the surrender charge period may incur a surrender charge (and if applicable, may incur a market value adjustment and/or a bonus recapture) that may reduce your annuity value? Yes No 23. Do you understand that due to surrender charges (and if applicable, due to a market value adjustment and/or a bonus recapture), you may receive less than the premiums paid? Yes No 24. Do you plan on holding the annuity until at least the end of the surrender charge period? Yes No 25. Did your Agent explain the other charges and limits that may apply to the annuity, including rider charges and limits on interest returns? Yes No 19. Did you discuss the ways to access the money in the annuity with the client? Select yes or no. 20. How does the Applicant anticipate taking distributions from the annuity? Select all of the types of distributions that your client anticipates taking. Your client s response is not binding and they are free to change their mind. If your client is unsure of the answer, mark each of their likely choices. It is important to understand that annuities are long-term fi nancial products and your client should generally not need to access the amounts, other than the free withdrawal amount, held in the annuity until the end of the surrender period. Clients anticipating taking required minimum distributions must meet certain requirements under the federal income tax code. It is important that your client understand the different types of distributions and which ones are appropriate under the annuity for which they are applying. 21. When does the Applicant anticipate taking their first distribution? Select the time frame in which your client anticipates taking their fi rst distribution. Your client s response is not binding and they are free to change their mind. If your client is unsure of the answer, mark their most likely choice. Your client should not anticipate taking their fi rst distribution before the end of the surrender charge period, unless the anticipated distribution is a free withdrawal, since distributions during the surrender charge period incur a surrender charge and other charges and adjustments. 22. Does the Applicant understand that withdrawals in excess of free withdrawals during the surrender charge period may incur surrender and other charges? Select yes or no. 23. Does the Applicant understand that they may receive less than the premiums paid due to surrender and other charges? Select yes or no. 24. Does the Applicant plan on holding the annuity until at least the end of the surrender charge period? Select yes or no. Page 11 of 24 IM /02/10

12 25. Did you discuss with the Applicant the other charges and limits that apply to the annuity? Select yes or no. You are required to discuss with your client all of the charges and limits that may apply under the annuity. Your client s understanding of the charges and limits of the annuity is critical to making an informed decision. Customer Identification Verification This section ensures compliance with the USA Patriot Act. You should fi ll out the appropriate ID information and citizenship question for each owner of the contract. 7. Customer Identification Verification Owner Driver s License Passport State or military photo ID Card Number State/County of Issue Expiration Date US Citizen Yes No Joint Owner Driver s License Passport State or military photo ID Card Number State/County of Issue Expiration Date US Citizen Yes No Other (Trustee, POA, Officer, etc.) Driver s License Passport State or military photo ID Card Number State/County of Issue Expiration Date US Citizen Yes No For the Owner and Joint Owner select the appropriate identifi cation type then record the Number of the document, the State or County of Issue and the Expiration Date. For the Owner and Joint Owner, indicate if they are a U.S. Citizen. Applicant Acknowledgment 8. Applicant Acknowledgement Note: Please verify that ALL questions were answered. This Form must be completed, signed, and dated so we can consider the Application. I understand that I should consult my tax advisor regarding possible tax implications of the purchase, sale, surrender, and annuitization of an annuity and, if it applies, the exchange of an existing annuity or life insurance contract. I understand that during the surrender charge period a surrender charge may apply (and if applicable, a market value adjustment, and/or a bonus recapture may apply) on withdrawals or termination of the annuity. I intend to keep the annuity contract at least through the contract s surrender charge period. I have been provided with and read a Statement of Understanding (SOU) that discloses the surrender charge period and surrender charges, (and if applicable, any market value adjustment, and any bonus recapture) for the annuity. For New Jersey Consumers: The sale and suitability of annuities is regulated by the Department of Banking and Insurance and consumers may obtain assistance from the Department by contacting or , or by visiting the Department s website at By signing below, I acknowledge that the information above is true and complete and that I have read and understand the above statements. I have also received a copy of the Statement of Understanding (SOU). x Applicant Signature Date (mm/dd/yyyy) x Joint Applicant Signature Date (mm/dd/yyyy) The Applicant and any Joint Applicant must sign and date the Suitability Form to acknowledge that they understand certain provisions of the annuity for which they are applying and that the information they have provided is true and correct. If the owner is a natural person, the owner must sign and date the Suitability Form. Page 12 of 24 IM /02/10

13 If the proposed owner is a trust, the trustee of the trust must sign and date the Suitability Form. A copy of the trust certifi cation form must be included with the Suitability Form. If the proposed owner is a corporation, an appropriate representative of the corporation must sign and date the Suitability Form. A copy of the corporate resolutions authorizing the representative to act on behalf of the corporation must be included with the Suitability Form. If the owner is an UTMA or UGMA, the parent or custodian must sign and date the Suitability Form. Agent Acknowledgment 8. Applicant Acknowledgement Note: Please verify that ALL questions were answered. This Form must be completed, signed, and dated so we can consider the Application. I understand that I should consult my tax advisor regarding possible tax implications of the purchase, sale, surrender, and annuitization of an annuity and, if it applies, the exchange of an existing annuity or life insurance contract. I understand that during the surrender charge period a surrender charge may apply (and if applicable, a market value adjustment, and/or a bonus recapture may apply) on withdrawals or termination of the annuity. I intend to keep the annuity contract at least through the contract s surrender charge period. I have been provided with and read a Statement of Understanding (SOU) that discloses the surrender charge period and surrender charges, (and if applicable, any market value adjustment, and any bonus recapture) for the annuity. For New Jersey Consumers: The sale and suitability of annuities is regulated by the Department of Banking and Insurance and consumers may obtain assistance from the Department by contacting or , or by visiting the Department s website at By signing below, I acknowledge that the information above is true and complete and that I have read and understand the above statements. I have also received a copy of the Statement of Understanding (SOU). x Applicant Signature Date (mm/dd/yyyy) x Joint Applicant Signature Date (mm/dd/yyyy) You must sign and date the Suitability Form to certify that you believe that the annuity being applied for is suitable for your client. Page 13 of 24 IM /02/10

14 FINANCIAL INVENTORY FORM All information requested in the Financial Inventory Form should be completed, including your client s and your signature. If any change is made, your client must sign and date the change before it is submitted. You are not required to submit the Financial Inventory Form with the Application but, should additional information be needed to complete the suitability analysis, we may request the Financial Inventory Form from you. Accordingly, you should have your client complete the Financial Inventory Form at the time of Application to assist you in your suitability determination and keep a copy of the form in your fi les. You may use our Financial Inventory Form or that of another carrier. However, our forms are designed to obtain the information we will most likely need if we require additional information. Thus, if you choose to use another carrier s forms, it may result in delays as you collect the additional information we need. Missing information may delay our processing of the application and issuance of the annuity. We reserve the right to contact you or your client to clarify the information contained in the Financial Inventory Form or to collect additional information we determine is relevant to the suitability analysis. For the financial information requested, include the owner or annuitant s information as well as spouse or partner, if a member of the same household. Applicant Information 1. Provide Applicant Information Applicant Name First MI Last Social Security Number/Tax ID Number Date (mm/dd/yyyy) Joint Applicant Name First MI Last Social Security Number/Tax ID Number Complete this section in the same manner as the Applicant Information section of the Suitability Form. Annual Income 2. Annual Income (List $0 if no such source.) 1. Salary and wages $ 2. Social Security payments $ 3. IRAs and other $ pension/retirement plans 4. Payments from annuities $ 5. Interest/dividend income $ 6. Rental income $ 7. Profits and losses from $ the sale of an asset 8. Other $ 9. Other $ 10. Other $ Total Annual Income $ Please insure this total matches the Approximate annual income figure from 3.1 on the Annuity Suitability form. This section of the Financial Inventory Form will provide the information needed to complete question 1 under Provide Financial Information on the Suitability Form. Fill in the total dollar amounts of each of the listed types of income. The amounts should be on an annual basis. You can obtain this information from your client s most recent tax return. Fill in $0 if your client does not receive income of the type listed. If your client receives income of a type not listed, use the Other line items. The dollar amount of the income should be fi lled in along with a description of the type of income. Once all of the income amounts are listed, the sum of all the amounts should be calculated and entered as the Total Annual Income. Page 14 of 24 IM /02/10

15 Annual Living Expenses 3. Annual Living Expenses (List $0 if no expenses in that category.) 1. Rent/mortgage payment $ 2. Utilities and other $ household maintenance 3. Insurance premiums $ 4. Debt repayment $ 5. Transportation $ 6. Food $ 7. Health care $ 8. Nursing home and $ assisted living costs This section of the Financial Inventory Form will provide the information needed to complete question 2 under Provide Financial Information on the Suitability Form. Fill in the total dollar amounts of each of the listed types of expenses. The amounts should be on an annual basis. Fill in $0 if your client does not incur the type of expense listed. Other household maintenance may include expenses such as pest control and general maintenance costs. Health care should include all medical costs including insurance co-pays and prescription drug costs. If your client incurs expenses of a type not listed, use the Other line items. The dollar amount of the expense should be fi lled in along with a description of the type of expense. Once all of the expense amounts are listed, the sum of all the amounts should be calculated and entered as the Total Annual Living Expenses. Total Assets 4. Total Assets 9. Taxes $ 10. Dependent support $ 11. Charitable donations $ 12. Vacation and recreation $ 13. Other $ 14. Other $ 15. Other $ Total Annual Living Expenses $ (Please exclude Applicant s primary residence and personal property such as jewelry, furnishings and vehicles.) 1. Checking accounts $ 2. Savings accounts $ 3. Certificates of deposit $ 4. Non-retirement stocks, bonds, and mutual funds $ 5. Non-retirement annuities $ 6. Retirement accounts $ 7. Real estate $ 8. Business equity $ 9. Other $ 10. Other $ 11. Other $ Total Assets $ This section of the Financial Inventory Form will provide part of the information needed to complete question 8 under Provide Financial Information on the Suitability Form. Fill in the total dollar value of each of the listed types of assets. Fill in $0 if your client does not own the type of asset listed. Assets does not include your client s primary residence or personal property such as jewelry, furnishings, or vehicles. If your client owns assets of a type not listed, use the Other line items. The dollar value of the asset should be fi lled in along with a description of the type of asset. Once all of the asset values are listed, the sum of all the values should be calculated and entered as the Total Assets. Page 15 of 24 IM /02/10

16 Total Debt 5. Total Debt (List $0 if no debts in that category.) 1. Mortgages on non-primary $ residence properties 2. Credit card debt $ 3. Automobile loan/lease $ payments 4. Student loans $ 5. Other $ 6. Other $ 7. Other $ Total Debt $ This section of the Financial Inventory Form will provide part of the information needed to complete question 8 under Provide Financial Information on the Suitability Form. Fill in the total dollar value of each of the listed types of debt. Fill in $0 if your client does not have the type of debt listed. Debt does not include any mortgage on your client s primary residence. If your client has debt of a type not listed, use the Other line items. The dollar value of the debt should be fi lled in along with a description of the type of debt. Once all of the debt amounts are listed, the sum of all the amounts should be calculated and entered as the Total Debt. Net Worth 6. Net Worth Net worth = total assets less total debt Total Assets $ Less Total Debt $ Total Net Worth $ This section of the Financial Inventory Form will provide the information needed to complete question 8 under Provide Financial Information on the Suitability Form. Enter the value computed above as Total Assets. Enter the value computed above as Total Debt. Subtract the Total Debt from the Total Assets to fi nd your client s Total Net Worth. If Total Assets is greater than Total Debt, Net Worth will be positive. Net Worth will be negative if Total Debt is greater than Total Assets. Liquid Assets 7. Liquid Assets (List $0 if no assets in that category.) (Please exclude funds that will be used to purchase this annuity, and personal property such as jewelry, furnishings, and vehicles.) 1. Checking accounts $ 5. Annuity free withdrawals $ 2. Savings accounts $ 6. Other $ 3. Money market accounts $ 7. Other $ 4. Stocks, bonds, and $ 8. Other $ mutual funds Total Liquid Assets $ This section of the Financial Inventory Form will provide the information needed to complete question 9 under Provide Financial Information on the Suitability Form. While some of these types of assets may be included in Total Assets above, not all of the assets included in Total Assets will be considered Liquid Assets. Liquid assets are those assets that can readily be turned into cash without the imposition of fees or penalties. Fill in the total dollar value of each of the listed liquid asset types. Fill in $0 if your client does not own the type of liquid asset listed. Page 16 of 24 IM /02/10

17 If your client owns liquid assets of a type not listed, use the Other line items. The dollar value of the liquid asset should be fi lled in along with a description of the type of liquid asset. Once all of the liquid asset values are listed, the sum of all the values should be calculated and entered as the Total Liquid Assets. Additional Information 8. Additional Information (Optional. To be completed by Agent or Applicant, or both.) Please use this space to list any additional information about the Applicant s financial situation that would help us in making a determination about suitability. The Additional Information section is optional to complete. You should include any information about your client that was not included in the Suitability Form or the Financial Inventory Form that you think will be relevant to the suitability determination. This may include descriptions of anticipated signifi cant changes to your client s fi nancial information that are not refl ected in the forms or ANY other information you believe is relevant. Applicant Acknowledgment 9. Applicant Acknowledgement Note: Please verify that all required information has been provided. I acknowledge that the information above is true and complete. x Applicant Signature Date (mm/dd/yyyy) x Joint Applicant Signature Date (mm/dd/yyyy) x Agent Signature Date (mm/dd/yyyy) The Applicant and any Joint Applicant must sign and date the Financial Inventory Form to acknowledge that the information they have provided is true and correct. See the Applicant Acknowledgment for the Suitability Form for instructions on who must sign the Financial Inventory Form for the Applicant. You, as the Agent, must also sign the Financial Inventory Form to verify that all of the required information has been provided and that the information provided is true and correct to the best of your knowledge. Page 17 of 24 IM /02/10

18 REPLACEMENT COMPARISON FORM If your recommendation involves an exchange or replacement of another existing annuity (each referred to as an Existing Annuity ), your client must provide the information to complete SBL s Replacement Comparison Form. Information for each Existing Annuity that is proposed to be replaced should be included on the form. Please use additional forms if necessary. The Replacement Comparison Form facilitates the important comparison of the costs and benefi ts of the Existing Annuity and the proposed replacement annuity in order to determine whether the replacement is in your client s best interest. All information requested in the Replacement Comparison Form should be completed, including your client s and your signature. If a change is made, your client must sign and date the change before it is submitted. You are required to submit the Replacement Comparison Form with the Application Accordingly, you should have your client complete the Replacement Comparison Form at the time of Application to assist you in your suitability determination and keep a copy of the form in your fi les. SBL requires that you use our Replacement Comparison Form. Our forms are designed to obtain the information we will most likely need if we require additional information. Missing information may delay our processing of the application and issuance of the annuity. We reserve the right to contact you or your client to clarify the information contained in the Replacement Comparison Form or to collect additional information we determine is relevant to the suitability analysis. Applicant Information 1. Provide Applicant Information Applicant Name First MI Last Social Security Number/Tax I.D. Number State Application Signed at Complete this section in the same manner as the Applicant Information section of the Suitability Form. Page 18 of 24 IM /02/10

19 Replacement Information 2. Provide Replacement Information 1. Company Name Existing Annuity Existing Annuity Proposed Replacement Annuity 2. Type of Contract Fixed Fixed Indexed Variable Fixed Fixed Indexed Variable Fixed Fixed Indexed Variable 3. Product Name 4. Date of Issue 5. Initial Premium $ $ $ 6. Source of Initial Premium 7. Bonus $ or % $ or % $ or % 8. Bonus Recapture Current Year % or N/A Current Year % or N/A Current Year % or N/A 9. Annuitization Date Flexible Fixed Flexible Fixed Flexible Fixed 10. Current Account Value $ $ 11. Current Cash Surrender Value $ $ 12. Surrender Charge Schedule for Remaining Years 13. Market Value Adjustment Yes No $ Yes No $ Yes No To complete the Replacement Comparison Form, you and your client will need to collect the Existing Annuity contract and any riders or waivers, the last annual statement for the Existing Annuity sent to your client, and the information provided by SBL on the proposed replacement annuity. 1. Company Name Fill in the name of the company that issued the Existing Annuity and Security Benefit Life for the proposed replacement annuity. 2. Type of Contract Select the correct type of product for both the Existing Annuity and the proposed replacement annuity. The types of contracts involved in the replacement are critical to the suitability analysis. The different types of contracts provide different features and benefits to the owner, all of which must be considered to determine whether the replacement is suitable. This information can generally be found on the cover page of the Existing Annuity. 3. Product Name - Fill in the marketing name of the Existing Annuity and the annuity you are recommending to your client. This information can generally be found on the cover page of the Existing Annuity. 4. Date of Issue Fill in the date of issue for the Existing Annuity. The date of issue is required to determine the applicable charges that will apply to the replacement of the Existing Annuity. The date of issue also determines whether the Existing Annuity is being replaced in a manner that is considered to be an unfair trade practice. This information can generally be found on the specifi cations page of the Existing Annuity. Page 19 of 24 IM /02/10

20 5. Initial Premium Fill in the dollar amount of premium that was initially paid in to the Existing Annuity and the premium amount proposed to be paid in to the replacement annuity. This information can generally be found on the specifi cations page of the Existing Annuity. This information can be found under Annuity Information in the Suitability Form for the SBL replacement annuity. 6. Source of Initial Premium Fill in the source of initial premium for the Existing Annuity. A proposed replacement where the Existing Annuity was funded by the replacement of another annuity or life insurance policy raises concern as to the proposed replacement s benefi t. This may also indicate that the Existing Annuity is being replaced in a manner that is considered to be an unfair trade practice. This information can generally be found on the specifi cations page of the Existing Annuity. This information can be found in the answer to question 16 of the Suitability Form for the SBL replacement annuity. 7. Bonus Fill in the dollar amount or additional interest rate of any bonus that the Existing Annuity paid on your client s premiums or credited to the Existing Annuity. Also fill in any bonus that the proposed replacement annuity will pay or credit. A bonus is (i) an additional dollar amount credited to the contract when premium payments are made during a specifi ed period of time or (ii) a higher crediting rate that applies for a specifi ed period of time. Bonus annuities may include changes to the elements used to determine the index interest credits or changes to the interest rate that are not included in similar annuities without a bonus. These changes may include lower current interest rates, higher surrender charges, longer surrender charge periods, lower participation rates or caps, higher spreads, or other changes. The amount of charges or reduction of interest credits may exceed the amount of the bonus. The bonus amount that will be paid on premium payments made to the proposed replacement annuity should not be the only factor considered when determining whether the surrender or other charges that apply to the Existing Annuity make the replacement benefi cial to your client. This information can generally be found on the specifi cations page of the Existing Annuity. This information can be found in the SOU for the SBL replacement annuity. Note that the bonus amount may differ depending on the state in which the annuity is issued. 8. Bonus Recapture Fill in the percentage amount of any bonus recapture or bonus vesting that applies under the Existing Annuity and the proposed replacement annuity for the current year. A bonus recapture or vesting requirement is similar to a surrender charge that is assessed if the contract is surrendered or a withdrawal is made in excess of the free withdrawal amount under the contract. The higher a bonus recapture percentage, the more unfavorable it is to the owner of the annuity. The lower a bonus vesting percentage, the more unfavorable it is to the owner of the annuity. This information can generally be found on the specifi cations page of the Existing Annuity. This information can be found in the SOU for the SBL replacement annuity. Note that the bonus recapture or bonus vesting may differ depending on the state in which the annuity is issued. 9. Annuitization Date Fill in whether the annuitization dates under the Existing Annuity and the proposed replacement annuity are fi xed or fl exible. If an annuitization date is fi xed, fi ll in the exact annuitization date. The annuitization date is also sometimes referred to as the maturity date. It is the date that annuity payments are scheduled to begin under the contract. It is generally considered more benefi cial to the owner of the annuity to have a fl exible annuitization date because the owner then has the discretion to choose the date they will begin receiving annuity payments rather than have a fi xed date. This information can generally be found on the specifi cations page of the Existing Annuity. However, even if an annuitization date is specifi ed, you should review the body of the Existing Annuity to determine whether the annuitization date can be changed. This information can be found in the SOU for the SBL replacement annuity. 10. Current Account Value Fill in the current dollar amount of account value for the Existing Annuity. value is also sometimes referred to as the accumulation value or cash value. The current account value for the Existing Annuity is an important factor in the replacement comparison because it is the value that the owner is giving up for the proposed replacement annuity. This information can generally be found in the most recent statement for the Existing Annuity sent to your client. Page 20 of 24 IM /02/10